Extracts fm DBS Report dated 19-Apr-06,

A need to focus

Further losses expected, as falling NAND flash prices compound problem. CREAF is now expecting more operating losses in 3QFY06 after NAND flash prices fell between 43% and 61%. 1GB, 4GB and 8GB NAND flash prices have fallen 45%, 61% and 43%, respectively, YTD. Earlier, CREAF announced a non-cash impairment charge of US$25m and a restructuring charge of US$9m due to the scaling down of its graphics business. As a result, we now estimate that the Group could record a net loss of US$65m for the quarter.

Needs to review its operations. For the second year running, CREAF has run into problems with its demand and inventory planning. Last year, CREAF overestimated demand for MP3 players during the slower 1H05. It seems like it has again stocked up too much NAND flash memory or finished products inventory. We believe CREAF has unique technology expertise in digital audio, which can be seen in the X-Fi audio chip. However, it should focus its efforts on developing new products, licensing its technology and building its brand rather than try to keep most of the production in house. Many successful companies have now outsourced most of their production requirements.

Maintain HOLD, current year fair value lowered to S$10.00. Admittedly, there is currently no visible share price catalyst to drive the stock higher. However, given that the stock is trading near its book value, downside is limited. Its book value does not consider the intangible value of CREAF’s brand and expertise, which should logically account for something. We reiterate that CREAF has the expertise to differentiate its products technologically, and given its research and development capabilities, we can expect CREAF to unveil more products. It should do better if it just focuses on that.

Extracts fm CIMB Report dated 6-Apr-06,

Expects operating loss of US$55-65m in 3QFY06
Expects huge operating losses in 3QFY06. Creative announced yesterday that it expects to incur an operating loss of US$55-65m (US$6.4m profit in 3QFY05) on turnover of US$220-230m in 3QFY06. The expected losses are in addition to the non-cash impairment charge of US$25m and restructuring charges of US$9m associated with the refocus of its graphic business from the traditional professional workstation to portable handheld market.

Negatively affected by the MP3 player business. According to Creative, the operating losses were attributable to the falling flash memory prices during the quarter, particularly the drastic decline at the end of the quarter. This has impacted sales in March and resulted in lower-than-expected revenue, gross margin, and inventory write-down in the period.

Comments

Worst-than-expected. Although we had anticipated Creative to report a poor set of 3QFY06 results, the guided numbers were worst than our projection of an US$1m operating profit. The magnitude of operating losses was also much greater than market expectations. Sales guidance of a 41% to 44% qoq decline was also disappointing, as we have projected turnover to slip 15% qoq. In fact, the guidance would translate into 31% to 34% yoy plunge in revenue, reflecting the poor

Not surprised by the warning. Nevertheless, the profit warning does not come as a surprise to us as we have caution investors on risk of further inventory write-offs, intensified competition in the MP3 player market, and the lack of new growth drivers for Creative. We also highlighted in the 2QFY06 results note that awards wining and positive review of its MP3-related products in the CES show do not necessarily translate into good sales, evident from some of its previous products. In fact, Creative’s MP3 players are ranked a distant 4th or 5th in the US market based on NPD monthly retail sales figure.

Gloomy outlook to persist. We expect business environment for Creative to remain tough at least for the next two quarters. Demand is only expected to pick up in 2QFY07 for the year-end Christmas sales. We remain negative on its prospects given the harsh competition in the MP3 player market and lack of new "winning" products in the foreseeable future. Although we have seen some smaller MP3 player manufacturers (Rio and Olympus) exited the market, other consumer giants like Sony and Samsung have been more active in new product introductions and advertising and promotion in bid to gain market share. Also, we see threat from mobile phones that come with MP3 feature.

Valuation and recommendation

Cutting forecast; maintain Underperform. We have raised our full year losses from US$10.4m to US$71.6m, excluding the investment gains in 1HFY06 and one-off impairment and restructuring charges in 3QFY06. Our FY07 and FY08 numbers are also lowered to reflect slower sales growth and 1% pt cut in gross margin assumption. We now expect Creative to incur net loss of US$0.1m in FY07 (US$13.6m profit previously) and net profit of US$0.9m in FY08 (US$26.5m previously). We see little near-term catalysts for re-rating and thus are keeping our Underperform call. Our target price remained unchanged at S$8.45 which is based on 0.8x P/BV. We see this as a support level based on historical performance.

Fm SGX Announcements,

CREATIVE PROVIDES PRELIMINARY Q3 FY06 RESULTS

SINGAPORE – April 5, 2006 – Creative Technology Ltd. (NASDAQ: CREAF), a worldwide leader in digital entertainment products, today announced that it is projecting an operating loss of approximately $55 million to $65 million on revenues of approximately $220 million to $230 million for the third quarter of its 2006 fiscal year, ended March 31, 2006. These results are in addition to the previously announced non-cash impairment charge of $25 million and the restructuring charge of $9 million associated with the refocus of the Company’s graphics business in the period. The operating loss is primarily attributable to a drop in flash memory prices in the quarter, with a particularly drastic drop in flash memory prices at the end of the quarter. The sharp drop in memory prices had a significant negative impact on sales in March and resulted in lower revenues and gross margins and inventory write-downs in the period.

Creative Tech Unit to Refocus Business
Friday February 24, 7:22 am ET

Creative Technology Unit to Refocus Business, Sees About 100 Job Cuts and Charges

MILPITAS, Calif. (AP) -- Creative Technology Ltd., which makes digital entertainment products for computers, on Friday said its 3Dlabs Inc. unit plans to refocus its business, resulting in about 100 job cuts and charges.

The company, best known for its Sound Blaster sound cards, said 3Dlabs will focus on the portable handheld device market, with less attention to its professional workstation graphics business -- a market that it said is shrinking.

Creative Technology said it expects the refocus and job cuts to result in a restructuring charge of about $9 million in its current quarter, as well as an about $25 million non-cash impairment charge for goodwill and intangible assets.

The company did not disclose its total employment level in a press release.

Extracts fm CIMB Report dated 27-Jan-06,

Prospects Still Gloomy

• Within expectations. 2Q06 net profit of US$1.3m (excl. US$6.9m investment gains) was in line with our estimate, but worse than consensus forecast of US$4.5m. 1H06 net profit represents 97% of our full year forecast. 
  
  
• Sales rose by only 4% yoy in 2Q06. PDE sales, which include MP3 players and webcams, grew by 9% yoy. This pales in comparison with Apple’s 140% yoy jump. Creative shipped over 2.6m MP3 players, representing only 19% of Apple’s volume. Sales of speaker products were also disappointing, falling 10% yoy (5th consecutive quarter of yoy decline). The only bright spot was audio products, which finally registered 4% yoy growth after 20 consecutive quarters of yoy decline due to the introduction of X-Fi sound cards. 
  
  
• EBITDA margin plunged 4% pts yoy as a result of the sharp decline in gross margin, caused by pricing pressure and greater contributions from low margin MP3-related products. Despite the US$6.9m investment gains from the sale of quoted shares, 2Q06 net profit declined 31% yoy. Excluding the exceptional items in 2Q06 and 2Q06, core earnings plunged 95% yoy. 
  
  
• Inventory still high. Although inventory dipped 18% qoq, inventory days remained high at about 104 days. 
  
  
• Gloomy prospects in 2H06. Sales growth for its PDE products appears to have stalled, and we believe Creative will continue to face stiff competition in this segment despite the introduction of new products. We must highlight that winning awards and positive review of its MP3-related products in the CES show do not necessarily translate into good sales, evident from some of its previous products. We believe the only wild card is the use of X-Fi chips outside the PC. However, these products will only be available later this year. 
  
  
• Forecasts and Underperform unchanged. We see little near-term catalysts for re-rating, especially as Creative enters into the lull season. As such, we are keeping our Underperform call, and maintain our target price of S$8.45, which is based on 0.8x P/BV, the support level based on historical performance.

CREATIVE ANNOUNCES Q2 FY06 FINANCIAL RESULTS WITH REVENUES OF $390.8 MILLION


SINGAPORE - January 26, 2006 - Creative Technology Ltd. (NASDAQ: CREAF), a worldwide leader in digital entertainment products, today announced financial results for the second quarter of fiscal year 2006, ended December 31, 2005. All financial results are stated in U.S. dollars.

Sales for the second quarter were $390.8 million, up from sales of $375.1 million in the same quarter last year. Sales for the first six months of fiscal year 2006 were $671.0 million, compared to $585.2 million for the first six months of the previous fiscal year.

Net income for the second quarter was $8.2 million with EPS of $0.10, including an investment gain of $6.9 million. Excluding the investment gain, net income for the second quarter was $1.3 million with EPS of $0.02. This compares to net income of $11.8 million with EPS of $0.14 for the same quarter last year including an investment gain of $51.5 million and a non-cash impairment charge of $65.2 million for goodwill and intangible assets relating to the acquisition of 3Dlabs in 2002. Excluding the investment gain and non-cash impairment charge, net income for the same period last year was $25.5 million with EPS of $0.30.

Net income for the first six months of the 2006 fiscal year was $8.9 million, with EPS of $0.11, including investment gains of $16.9 million. Excluding the investment gain, net loss for the first six months of the 2006 fiscal year was $8.0 million, with loss per share of $0.10. This compares to net income of $16.6 million with EPS of $0.20 for the same period last year, including investment gains and the non-cash impairment charge. Excluding the investment gain and non-cash impairment charge, net income for the first six months of the previous fiscal year was $31.5 million with EPS of $0.37.

"During the quarter we achieved several key results. Of primary importance we achieved our goal of returning to profitability," said Craig McHugh, president of Creative Labs, Inc. "Our revenue in the quarter was the highest for any quarter in the past five years, with increased year-over-year sales in each of our key product categories - MP3 players, audio, web cams and PC and MP3 speakers. The Zen Vision:M, our 30GB MP3, photo and video player was launched in December. We reduced our net inventory 18 percent from the previous quarter. In the next few quarters, we plan to further lower our inventory, reduce our overall level of operating expenses, and we will increase our focus on our higher-margin businesses."

"We're very excited about the introduction of our Zen Vision:M, MP3, photo and video player. We launched the Zen Vision:M in the U.S. at the Consumer Electronics Show in Las Vegas in January, where it won the 'Best of CES' award for the MP3 and portable video category and received the overall 'Best in Show' award," said Sim Wong Hoo, chairman and CEO of Creative. "We competed against thousands of companies, including all the big names in consumer electronics, to be recognized for the best product at the largest annual trade show in the United States. Being chosen as the best new product at the show validates our strategy to provide the coolest-looking, most feature-rich portable media players in the world."

Share Buyback Program

During the quarter, Creative did not repurchase any shares under its share buyback program.

Recent Announcements

Creative introduced the Zen Vision:M 30GB MP3, photo and video player. Featuring a dazzling, 2.5-inch, high-resolution 262,144 color LCD display, the Zen Vision:M holds 15,000 songs, thousands of photos and 120 hours of video, and is available in high-gloss black, white, blue, green or pink.

Creative announced that the Zen Vision:M won the overall "Best in Show" award at the Consumer Electronics Show and the "Best of CES" award in the MP3 and portable video category.

Creative announced ZENCast™, the new application for accessing, creating and transferring thousands of audio and video blogs for Creative Zen MP3 players.

Creative announced the Live!® Wireless, an easy-to-use web camera that utilizes a wireless network to enable remote viewing of a home or office from any Internet-enabled PC, PDA or mobile phone.

Creative announced the latest addition to its award-winning GigaWorks™ speaker family- the THX-certified GigaWorks™ ProGamer G550W. Featuring wireless audio transmission to its two rear speakers, the GigaWorks ProGamer G550W delivers powerful surround sound audio for music, movies and games.

Creative announced the Fatal1ty 2020 Mouse, the only PC gaming mouse co-developed with 2005 Cyberathlete Professional League Worldwide Champion gamer, Johnathan "Fatal1ty" Wendel. A winning combination both in design and technology, the Fatal1ty 2020 Mouse features a 2400cpi HD-Laser engine that offers up to 6X the resolution of standard optical mice.

Creative introduced the Skype Internet PhonePLUS, a phone for the home or office that enables users to connect directly to a router to make free Skype calls. Functioning like a traditional phone, the Skype Internet PhonePLUS provides a new way to experience Skype without requiring a PC.


Awards & Accolades

The Creative Zen Vision:M received:
The "Best in Show" award at the Consumer Electronics Show
The "Best of CES" award for the "MP3 and Portable Video" category at the Consumer Electronics Show

The Creative Zen Vision received:
A 5 out of 5 rating from About.com
The "Innovations Award" from PC World magazine

The Creative Zen MicroPhoto won the "Editor's Choice" award from CNET.com

The Creative Sound Blaster X-Fi received:
The "Best of What's New" award from Popular Science magazine
The "Gear of the Year" award from Maximum PC magazine
The "Editor's Choice" award from TechReport.com
The "Editor's Choice" award from Globetechnology.com (Canada)

The Creative GigaWorks ProGamer G500 won the "Editor's Choice" award from Official Xbox Magazine

Creative X-Fi Xtreme Fidelity Audio Processor Wins Popular Science Magazine 'Best of What's New' Award
Tuesday January 17, 7:00 am ET
Editors and Executives From Popular Science Present Award to Creative Chairman and CEO Sim Wong Hoo at 2006 Consumer Electronics Show

MILPITAS, Calif., Jan. 17 /PRNewswire-FirstCall/ -- Creative (Nasdaq: CREAF - News), a worldwide leader in digital entertainment products, today announced that the Creative X-Fi Xtreme Fidelity(TM) audio processor was presented with the prestigious Popular Science magazine "Best of What's New" award at the 2006 Consumer Electronics Show. Awards were initially announced in the December 2005 issue of Popular Science.


"Best of What's New is the ultimate Popular Science accolade, representing a year's worth of work evaluating thousands of products," says Mark Jannot, editor of Popular Science. "These awards honor innovations that not only influence the way we live today, but that change the way we think about the future."

The "Best of What's New" award recognizes the most impressive advancements of the year in categories as wide-ranging as automotive tech, aviation and space, computing, engineering, personal health, recreation and more. The Creative X-Fi Xtreme Fidelity audio processor won an award in the Home Entertainment category, and was described in Popular Science under the heading: "Processor Makes MP3s Sound Like CDs Again."

The Creative X-Fi Xtreme Fidelity audio processor introduces the breakthrough Xtreme Fidelity(TM) audio standard. Powering the award-winning Sound Blaster® X-Fi sound cards, X-Fi and Xtreme Fidelity provide dramatic improvements to the recording and playback of MP3 music, accelerate and improve PC game play, enhance listening experiences for movies, and improve the capabilities, performance and quality of audio and music creation.

"We are very honored that our Creative X-Fi Xtreme Fidelity audio processor has been recognized by Popular Science as being among the best of all the products and technologies in the world," said Sim Wong Hoo, chairman and CEO of Creative. "We have set the new Xtreme Fidelity standard for audio by providing 24-bit quality, stunning audio clarity, and our new CMSS® (Creative Multi Speaker Surround) 3D headphone and surround speaker technology. With the X-Fi-powered 24-bit Crystalizer(TM), you can upgrade all of your CD and MP3 music to the Xtreme Fidelity standard without having to repurchase all of your content, and you can make the sound quality better than the original CD recordings. When it comes to X-Fi, you have to hear to believe."

The Creative X-Fi Xtreme Fidelity audio processor is designed with multiple engines, so it can dynamically direct resources through a modular architecture to completely change the way audio is managed for any application. The Creative X-Fi Xtreme Fidelity audio processor provides key modes that are optimized for experiences with MP3 music, gaming, movies and audio creation. Each mode is configured to dynamically dedicate the processor's power to deliver everything the user needs to maximize the features, quality and capabilities for each experience.

The Creative X-Fi Xtreme Fidelity audio processor drives new applications that can enhance MP3s by bringing them back to 24-bit quality, and allows the user to upgrade the music to multi-channel surround sound. It enables gamers to experience accelerated frame rates during game play, and for both music and gaming it powers the CMSS 3D headphone technology, which provides the experience of a multi-channel speaker system through virtually any headphones.

The Creative X-Fi Xtreme Fidelity audio processor is available now on the award-winning Sound Blaster X-Fi sound cards, available at major retailers and online, with prices starting at only US$129.99. For more information about the Creative X-Fi Xtreme Fidelity audio processor and the Sound Blaster X-Fi sound cards, please visit www.soundblaster.com.

Apple-rival Creative unveils new video MP3 player Thu Dec 8, 2005 09:31 AM ET
SINGAPORE, Dec 8 (Reuters) - The following statement was released by the company:

CREATIVE REVEALS THE ZEN VISION:M

Creative Zen Vision:M features Dazzling Color Screen and Capacity for up to 120 Hours of Video, Thousands of Digital Photos or up to 15,000 Songs Creative Technology Ltd. (CREA.SI: Quote, Profile, Research) (CREAF.O: Quote, Profile, Research) , a worldwide leader in digital entertainment products and the number one manufacturer of MP3 players with music subscription support, today introduced the Zen Vision:M, Creative's premier 30GB video player, photo viewer and MP3 player.

Designed with a stunning, 2.5-inch, high resolution 262,144 color LCD screen, the Zen Vision:M displays rich, vibrant digital video, and photos, full-color menus and album art.

The Zen Vision:M will be available in gorgeous high gloss black, white, blue, green or pink this month for US$329.99 at www.asia.creative.com. "When people see the Zen Vision:M, they tell us it's incredibly cool," said Sim Wong Hoo, chairman and CEO of Creative. "We designed the Zen Vision:M with its mesmerizing 262,144 color screen to display four times the color of the 30GB iPod that plays video, and to provide twice the battery life for video playback.

"Plus, we offer people the freedom to choose their video in a variety of different formats, and to get subscription music or download tracks from a number of different sites to their player." "The Zen Vision:M's capability to hold such a large number of songs makes it a great device to use in conjunction with Yahoo! Music Unlimited, where music lovers can access more than a million songs," said Dave Goldberg, General Manager of Yahoo! Music.

"We are pleased that all of the Creative Zen hard-drive based players, such as the Zen Vision, the Zen Sleek Photo, Zen MicroPhoto and the new Zen Vision:M are well suited to work with and support the Yahoo! Music Unlimited subscription service." The Zen Vision:M carries up to 15,000 songs, and supports music subscription services including Yahoo! Music Unlimited, Napster To Go and Rhapsody To Go.

The Zen Vision:M also supports downloads from online music stores like Yahoo! Music, Napster, MSN Music and AOL Music Now.

The rechargeable battery provides up to 14 hours of music playback. The Zen Vision:M delivers four hours of video playback and provides extensive video format support, including MPEG-2, MPEG-4 Simple Profile formats such as Xvid, WMV, and MJPEG for enjoyment of up to 120 hours of movies downloaded from the Internet.

The Zen Vision:M also supports TiVoToGo for free viewing of TV shows recorded on a TiVo personal video recorder, digitized home movies transferred from the PC, and video blogs from companies such as RocketBoom. With capacity for tens of thousands of photos, the Zen Vision:M displays stunning full-color image output on any size TV screen through an optional composite video-out connector.

Users can watch slideshows set to music and select individual digital photos as display backgrounders. The Zen Vision:M sets itself apart from the crowd with a host of rich features, including: · FM radio and recording - with 32 preset options

· Intuitive Vertical Touch Pad and Tactile Buttons on the face of the player - including the new "My Shortcut" Button for quick access to favorite DJ functions

· Content password protection - Protects any content stored on the player

· Built-in Microphone - shows volume levels on screen for optimum voice recording quality

· Selectable themes, including Marine Blue, Sable Black, Ice Blue, Forest Green, Candy Pink and Pearl White to match the color scheme of the player menus to any mood

· Organizer - Provides calendar, tasks and contact lists, and syncs with Microsoft Outlook

· Extras - Enables setting of Date & Time, plus allocation of Removable Disk space for dedicated storage

· A clock with wake-to-any-music alarm, color themes and different languages for further customization

· A bundled AC adapter, valued at US$29.99

Pricing and Availability

The new Creative Zen Vision:M will be available this month for US$329.99. It comes with an AC adapter, USB 2.0 cable, high-quality earphones, and a protective pouch. Optional accessories, including a docking station and an AV-out cable, will be available for purchase separately. For more information about Creative's complete line of MP3 and media players, visit www.asia.creative.com.

Extracted from Business Time

Published November 4, 2005

X-Fi is the key to next Creative step

THE MP3 war is over. Well, perhaps not completely over, but at least the war cries from Sim Wong Hoo have gone down a few decibels.

Most important thing: Discussing Creative's latest financial results, Mr Sim declared that his company will focus on profitability, not market share

During a conference call on Creative's latest financial results, Mr Sim declared that his company will focus on profitability, not market share.

So was Creative previously focused on market share at the expense of profitability? No matter how it did in the market share game, what is clear is that it still isn't the market leader. And going by its performance in recent quarters, what is also certain is that profitability has suffered.

Creative saw its gross margin fall from a healthy 30-plus per cent between FY2002 and FY2004 to 22.5 per cent in its last fiscal year ended June 30, 2005. Gross margin for Q1 FY2006 was 20.2 per cent.

But for investors, having the chairman and CEO of the company acknowledge and address falling gross margins is certainly a good sign. The question is: How is this going to be addressed?

One of Creative's strategies is not to play the price game. It tries to sell its products at a higher price, for a higher margin. But that's probably easier said than done. Because ultimately it isn't the market leader and thus cannot set the benchmark for pricing.

Should Apple drop the prices of its iPods, Creative - along with the rest of the industry - would certainly be forced to respond. Thankfully for them, market leader Apple isn't in the bargain bin business and isn't known to run Apple Fests with heavy discounts on products.

Creative's other strategy seems to be to go back to its higher-margin businesses - starting with sound cards. Mr Sim's faith in his X-Fi sound cards has not been misplaced - the audio business has accounted for a bigger chunk of revenue lately - 13 per cent of Q1 FY2006's revenues, up from 11 per cent in Q4 FY2005.

Sources have also said that Creative is seriously pursuing licensing its X-Fi technology to computer motherboard makers - echoing what Mr Sim initially said about his willingness to license the technology when he launched the cards, and bringing it a little closer to his vision of 'X-Fi everywhere'.

Like many other consumer technology vendors, Creative has also indicated that it is really not just about MP3 players, but more about the myriad of devices in the digital home space. 'We see tremendous future market opportunities for X-Fi and its technologies to be embedded in speakers and headphones, portable music and video players, digital audio workstations and in the living room, providing us with market potential far beyond the PC,' Mr Sim said in Creative's FY2005 annual report.

However, while some analysts don't seem bothered by Creative's US$300-million plus of inventory, it could be a spanner in the works should demand forecasts go wrong. Notably, benchmark competitor Apple consistently managed to keep its inventory at less than US$200 million in the previous fiscal year, despite the fact that it moves more than 6 million iPods a quarter, compared with the 2-3 million players that Creative ships.

Creative has also been propping up its bottom line with investment gains of more than US$70 million per year for the past two fiscal years, largely from the sale of its shares in chipmaker SigmaTel. Its Q1 FY2006 results show it again sold SigmaTel shares, netting another US$10 million, bringing it out of an operating loss to report a US$0.7 million net profit. Analysts estimate that Creative is still sitting on US$50 million of unrealised gains from its SigmaTel shareholding.

But ultimately, what investors need to see now from Creative is visibility of products sporting its X-Fi technology, and perhaps some new products for the digital home space. Otherwise, investor interest will wane, and all the shouting about X-Fi will amount to nothing.

Extracts fm CIMB Report dated 27-Oct-05,

• Below expectations. While gross margin of 20.2% was 1% pt above our assumptions, 1Q06 net loss of US$9.3m (excl. US$10m investment gains) was worse than our projected US$6.4m net loss and consensus US$0.5m net profit. This was due to slower-than-expected sales and higher-than-expected opex. 
  
  
• Sales grew 33% yoy to US$280m in 1Q06, driven by low margin PDE products such as MP3 players and webcams. It registered a 123% yoy jump in MP3 player shipments. Performance by audio and speaker products was disappointing, falling 17% (20th consecutive quarters of yoy decline despite the introduction of X-Fi in Aug) and 13% yoy, respectively. PDE, audio, speaker, and others accounted for 66%, 13%, 13%, and 8% of 1Q06 revenue. 
  
  
• US$1.6m EBITDA loss in 1Q06 vs profit of US$12m a year ago, due to a sharp compression in gross margin as a result of greater contributions and pricing pressure for the MP3-related products. It incurred an operating loss of US$8.6m despite a 5.2% pts yoy decline in opex ratio. However, bottom line was lifted by an investment gain from the sale of quoted shares. 
  
  
• Net debt widened from US$30m in 4Q05 to US$43m in 1Q06. Although inventory dipped US$30m qoq, inventory days remained high at 119 days. Creative repurchased 1m shares at an average price of US$8.13/share in 1Q06. 
  
  
• No Christmas cheer this year. Its MP3 player business will face tough competition (Apple introduced iPod nano and video early Sep 05) and component shortage (1GB NAND flash) during the seasonally strongest quarter. We were also disappointed on the sales performance of its new audio product, X-Fi, and thus have modelled only moderate growth in 2Q06 for audio products as opposed to the company’s bullish expectations. 
  
  
• Forecasts and Underperform maintained. Our unchanged target price of S$8.45 is based on 0.8x P/BV, which we believe is the support level based on historical performance. There could be downside risk to our forecast if demand for X-Fi falls below Creative’s and our expectations.

CREATIVE ANNOUNCES Q1 FY06 RESULTS

Extracted from New Release at Q1FY06

Revenues Up 33 Percent Year-Over-Year and MP3 Player Sales Increase 123 Percent Year-Over-Year

SINGAPORE - October 26, 2005 - Creative Technology Ltd. (NASDAQ: CREAF), a worldwide leader in digital entertainment products, today announced financial results for the first quarter of its 2006 fiscal year, ended September 30, 2005. All financial results are stated in U.S. dollars.

Sales for the first quarter were up 33 percent year-over-year, coming in at $280.2 million, up from $210.0 million in revenue for the same quarter last year.

For the first quarter, net income was $0.7 million with EPS of $0.01 per share, including an investment gain of $10.0 million. Excluding the investment gain, net loss for the first quarter was $9.3 million with EPS of a $0.11 loss per share. This compares to net income for the same period last year of $4.8 million with EPS of $0.06, including an investment loss of $1.2 million.

"During the quarter we made progress toward our goal of returning to profitability by the end of the calendar year, as our gross margins came in at 20.2 percent, compared to 10.1 percent last quarter," said Craig McHugh, president of Creative Labs, Inc. "We grew first quarter revenues 33 percent year-over-year, and our MP3 player sales were up 123 percent year-over-year. On August 22, we launched the Sound Blaster® X-Fi™ family of sound cards and our Xtreme Fidelity™ audio platform. We also launched several key new products during the quarter, including the Zen Vision and the WebCam Live! Motion."

"I'm very excited about the launch of the Sound Blaster X-Fi," said Sim Wong Hoo, chairman and CEO of Creative. "The reviews have been outstanding, with the X-Fi cards winning top awards from several major magazines, including 'Editor's Choice' awards from PC Magazine, PC Gamer magazine, GamePro magazine and Computer Games magazine, and the 'Kick Ass' award from Maximum PC magazine. With the Sound Blaster X-Fi family of sound cards, we have introduced the first products with our Xtreme Fidelity audio standard, which is just the beginning of our implementation across our different product categories."

"The Zen™ Vision music, photo and video player is also receiving outstanding early reviews, including winning the 'Best of Show' award at the DigitalLife consumer show in New York, beating out all other products at the show in the Portable Gear category," continued Sim.

Share Buyback Program

During the quarter, Creative purchased one million shares from its share buyback program at an average price of $8.13.

-- Edited by tfwee at 13:11, 2005-10-26

-- Edited by tfwee at 13:12, 2005-10-26

-- Edited by tfwee at 13:15, 2005-10-26

Creative seen in Q1 loss as iPod war escalates
Sun Oct 23, 2005 11:52 PM ET
By Jennifer Tan

SINGAPORE, Oct 24 (Reuters) - Singapore-based Creative Technology Ltd., whose Nomad and Zen MP3 music players aim to compete with Apple's iPod, probably swung to a quarterly loss as intensifying price competition squeezed its gross margins.

Christmas season sales may help return Creative (CREA.SI: Quote, Profile, Research) (CREAF.O: Quote, Profile, Research) to profit in the quarter ended December, but it faces an uphill battle making headway against the market dominance of Apple Computer Inc. (AAPL.O: Quote, Profile, Research) , with some analysts forecasting more red ink and a weaker balance sheet ahead.

Analysts predict a net loss when the company reports earnings for the July-September quarter on Wednesday.

Apple upped the stakes in September with its pencil-thin iPod nano, which uses flash memory chips to store photos and up to 1,000 songs. Apple's video iPod, launched this month, has a 2.5-inch screen and holds up to 150 hours of video clips.

"Competition is going to get more cut-throat and margins will fall further. Creative will probably slip in and out of the red going forward, " said Kim Eng Securities analyst Dharmo Soejanto.

Soejanto, who rates Creative a "sell", has forecast a net loss of $13 million for the December quarter.

Creative's other rivals include South Korea's Samsung Electronics Co. Ltd. (005930.KS: Quote, Profile, Research) , which produces the Yepp players, Japan's Sony Corp. (6758.T: Quote, Profile, Research) , and South Korea's Reigncom Ltd. (060570.KQ: Quote, Profile, Research) , whose iRiver players have won good reviews.

Mobile handset makers Nokia Oyj (NOK1V.HE: Quote, Profile, Research) and Motorola Inc. (MOT.N: Quote, Profile, Research) are also adding MP3 functions to high-end music phones.

A Reuters poll of eight analysts forecast an average net loss of $7.73 million on Oct. 26 for Creative's fiscal first quarter.

This compares with a $4.8 million net profit in the same period a year ago (which included a $1.2 million loss from its investment portfolio), and a $31.9 million net loss for the June quarter, which also included a $9.3 million investment gain.

In August, Creative said it expected to almost break even in its first quarter and return to profit by end-2005, helped by two new MP3 players -- the Zen Micro Photo and the Zen Vision -- with photo and video capabilities.

Creative is seen reporting a mean net profit of $6.75 million for the fiscal second quarter ending Dec. 31, the poll showed. Two of the analysts forecast losses, and one breakeven.

STEADILY DECLINING MARGINS

Creative's gross margins could rise to about 16 percent in its first quarter, from 10.1 percent in the fourth quarter when it was hit by a $20 million write-off of excess stock, but will likely fall to 14 percent in the second quarter, analysts said.

Its margins have fallen steadily from an average of 34-35 percent in the fiscal year ended June 2004. Apple's iPod commands a margin of around 20 percent, analysts said.

Earlier this month, Apple reported a record quarterly profit that quadrupled, and sold 6.5 million iPods in the September quarter, more than triple the number sold a year ago.

According to industry estimates, Apple holds over 70 percent of the global MP3 market, versus about 11 percent for Creative.

Citigroup Smith Barney analyst Pratik Gupta said Creative would turn profitable only in its fiscal year ending June 2007, largely driven by lower marketing expenses. He expects a net loss of $10 million for the year ending June 2006.

The firm could swing from a net cash position of $60 million at the end of June 2005 to a net debt position of $40 million by June 2006, as its aggressive marketing expenses continue to eat into its cash, Gupta added.

Creative Chief Executive Sim Wong Hoo said he would spend $100 million on marketing worldwide this year and promised to "out-market" rivals, but analysts are sceptical that Creative has the resources to compete against the bigger players.

Some analysts said Creative's new high-end computer sound card product, the Sound Blaster X-Fi, which enhances PC audio for music and gaming and has won overwhelming market acceptance, could prove the bright spot in an otherwise tough environment.

Digital entertainment devices, including MP3 players and musical computer keyboards, account for about 68 percent of Creative's sales, while audio contributes 11 percent.

Creative is seen posting a consensus net profit of $8.9 million for the year ending June 2006, Reuters Estimates showed. This compares with $600,000 net profit in the previous fiscal year, which included an investment gain and a one-off charge.

Creative shares rose 12 percent in the July-September quarter, underperforming a 48 percent surge in Apple stock.

Comments: Hmmm, a negative report before the finanical report on this week. I wonder whether Creative will prove the analyst wrong. Normally, when Mr. Sim does not said anything to the media, it will show good results because he will put on his thinking head to try to turn the company around. When he started to talk to media, then you would expect worse result. This happen a few months ago when he tried to tell the media about his plan to reduce Apple market shares. In the end, Apple market share increased. That is why people says "Silence is Golden" because it allow u to think better

KK wrote:

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Flash prices have held steady as a result of the huge demand generated from Apple-Samsung tie-up (Apple has been rumoured to be taking 40-50% of Samsung’s flash supply) which would likely impact Creative’s gross margins further. As well, supply of flash would be much harder to come by.

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There is a Report that the investment talk between Samsung and Apple has collapsed.

-- Edited by tfwee at 17:39, 2005-10-17

Extracts fm Lim and Tan Report dated 12-Oct-05,

• Apple Computer Inc’s 4Q ended Sept 2005 iPod sales rose 10% sequentially to 6.16mln units, but fell short of expectations ranging from 6.8mln to 8.5mln units. As a result, sales for the quarter of US$3.68bln (+57% yoy) fell short of expectations of US$3.74bln. Management said that due to production hiccups, supply of the latest iPod Nano fell short of the company’s projections significantly. According to the Vice President, “the backlog of orders was enormous at the end of the quarter and sales fell far, far short of demand”.
  
• As the delays range from 1 to 2 weeks, management expects the company to make up for the sales short fall in the quarter ahead. As a result, sales for the Dec ’05 quarter would rise from US$3.68bln to US$4.7bln, beating consensus estimates of US$4.53bln. Earnings per share of 49 cents would also be above current expectations of 48 cents.
  
• Sigmatel (which Creative holds 3.5mln shares) fell 26% to an all time low of US$13.69 as a result of lower than expected sales and profit reflecting weaker than expected demand in the MP3 space and inferior product mix.

COMMENTS

1. We do not expect Creative to benefit from the supply disruptions of Apple as reflected by the strong order backlog of Apple as well as better than expected sales forecast from Apple for the Dec quarter. As Creative’s strong hold has been in the flash memory segment, we believe Apple’s strong order backlog as well as forecasts ahead for the iPod Nano would translate to further market share loss for Creative. This is especially significant as we enter the most important holiday selling season.
   
2. Flash prices have held steady as a result of the huge demand generated from Apple-Samsung tie-up (Apple has been rumoured to be taking 40-50% of Samsung’s flash supply) which would likely impact Creative’s gross margins further. As well, supply of flash would be much harder to come by.
   
3. While Creative’s stake in Sigmatel would not be impacted in the Sept 2005 quarter as it was only yesterday that Sigmatel’s shares dropped significantly (26% to US$13.69), there is a possibility of further writedowns in the Dec ’05 quarter.
   
4. The numerous MP3 phones from Sony Ericsson, Nokia, Motorola would also be an increasing threat as prices decline towards MP3 player levels.
   
5. At 1.14x its historical book value (potential for further decline given potential inventory and investment writedowns as well as losses) we maintain SELL as the stock had traded to a low of 0.8x book during the last downturn.